We have previously shown that Lsh can influence the methylation pattern at retroviral sequences and endogenous genes, but the precise role of Lsh in the establishment of DNA methylation at a given site remained unclear. In particular it is not known whether Lsh, a member of the SNF2 family of chromatin remodeling proteins, can alter chromatin structure and how this can modulate DNA methylation. In order to study the molecular function of Lsh on chromatin, we established an in vitro ES cell based system. DNA methylation levels vary during development and are lowest in the inner cell mass of blastocysts before implantation. After implantation, a wave of de novo DNA methylation occurs and is associated with tissue differentiation. ES cells that differentiate in vitro show a similar wave of de novo methylation and can serve as suitable model to study the molecular function of Lsh in this process. We generated Lsh-/- ES cells and found that de novo methylation at several repeat sequences was incomplete in the absence of Lsh and fully restored when Lsh was re-introduced into Lsh-/- ES cells. This indicated that Lsh plays a critical in the establishment of DNA methylation during cellular differentiation. Furthermore, we found that Lsh is directly associated with those repeat sequences that are undergoing de novo methylation and that the presence of Lsh is required for association of the major DNA methyltransferase 3b to these loci. When we tested functional domains of Lsh, we discovered that the ATP binding site of Lsh is required for complete methylation and Dnmt3b association to these repeat target sequences. The ATP binding site is essential for ATP hydrolysis and chromatin remodeling function of SNF2 factors. Thus our results indicate that chromatin remodeling function of Lsh is required for effective DNA methylation. In order to assess chromatin structure we applied the nucleosomal occupancy assay. We detected lower nucleosomal density in Lsh-/- cells at repeat sequences compared to wild type controls. Nucleosomal density was restored to wild type levels upon re-introduction of Lsh into Lsh-/- cells. This indicated that nucleosomal occupancy at repeat sequences depends on the presence of Lsh. Finally, we could demonstrate that nucleosomal density depends on ATP function of Lsh indicating that Lsh performs chromatin remodeling at those repeat loci. Our results suggest that the primary molecular function of Lsh is chromatin remodeling via altering nucleosomal density at loci that are undergoing de novo methylation. Altered nucleosomal occupancy in turn modulates association of Dnmt3b with target sequences and hence supports de novo methylation. Our results connect two major epigenetic features, chromatin remodeling and DNA methylation, and provide mechanistic insights into the interplay of epigenetic pathways.